Skip to the content

#MacroFriday: The Golden Age of Gold

 

The last time we discussed this graph in our MacroFriday was in February, when the gold price hit a record high of 2882 USD per ounce. Eight months later, gold is trading at around 4,240 USD per ounce, marking an impressive 47% price increase.

 
The high (negative) correlation between the gold price and the US real rate broke in 2022. A key driver of gold's rally since then has been strong demand from global central banks, particularly in emerging markets. This trend is rooted in geopolitical concerns. In 2022, the West weaponized its currencies through SWIFT bans and asset seizures targeting Russia, prompting other central banks to seek alternative reserve assets.The IMF indicated that the share of gold holdings in total international reserves soared from 14% in the beginning of 2022 to almost 22% now, partly due to the rise in the price of gold in relative terms.
 
The ECB recently highlighted this dynamic: “Concerns related to sanctions and the possible erosion of the role of major currencies were cited by some central banks in emerging and developing economies.” Increasing anxiety over geopolitical tensions, the independence of the Federal Reserve and currency debasement, and, of course, investors’ FOMO are all fueling the spectacular surge in the price of this safe haven. It’s only recently that investors have begun increasing their holdings in gold ETFs again. Other precious metals, such as silver, platinum, and palladium, have also recorded notable price gains.

About the author

Jeroen Kerstens

comments powered by Disqus